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Source

Abstract

Date of default and past due status of an exposure are to be identified and measured in order to properly manage the credit risk by the banking industry. The article presents and discusses requirements set forth in legal regulations on world-wide level (New Capital Accord 2006 and International Accounting Standards 39), the UE level and some local jurisdictions including the Polish banking supervisor. There are essential differences in the regulations concerning these issues. On the other hand, banks are not only allowed but also obliged to define the values of quite a number of parameters by themselves. A model of an algorithmic process based on set of determining factors is proposed. Following the model the credit risk portfolio of a bank may be analysed be means of a broad set of parameters. The proposed calibration process enables a practical approach to the optimization of the values of the parameters along with the changing characteristics of the portfolio. The model may be applied both as a calibration tool as well as a basis for IT solutions in credit risk measurement and back testing required by the supervisors.

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